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About $1.2 billion funding for Nigerian technology startups may be threatened and job losses are imminent as the ripple effects of the collapse of Silicon Valley Bank (SVB), the 16th largest bank in the United States of America (USA), begins to unfold, LEADERSHIP has learnt.

The technology world was in panic mode at the weekend following the folding up of the bank, making some tech startups in Nigeria begin to weigh the option of laying off staff as operating funds get stuck.

The Nigerian IT ecosystem is vibrant and had about 3,340 startups as of December 2022, which is almost five times than the second largest adult ecosystem in Africa, Kenya. Nigeria is home to five out of seven unicorns in Africa, making it the optimal talent development spot in Africa, which has been pivotal to Nigeria’s digital economy drive.

Regulators in the US last Friday closed the bank with the Federal Deposit Insurance Corporation (FDIC) taking over its assets and planning to settle insured depositors from today, Monday March 13, 2023.

SVB is a specialised bank that serves tech industries and startups, which in turn depend on Venture Capitals (VCs) for funding. However, a turn in the global economy had reduced cash flow from VCs.

Also, the bank had invested in treasury bonds, and as the Federal Reserve raised rates the bank announced that it made a $1.8 billion loss on the sale of a portfolio of securities and sought to raise a further $2.25 billion from capital markets to shore up its balance sheet; however, its shares cratered.

By last Wednesday, investors started pulling out of the bank and customers tried in vain to withdraw their deposits from the bank, leading to its takeover by the US banking regulators.

The chief executive at General Partner of Future Africa, an early-stage venture capital firm, Iyinoluwa Aboyeji, who noted that SVB was one of the banks that knew how to bank tech companies, said many Nigerian tech companies banked with SVB for this purpose.

Aboyeji, who is also a co-founder of Andela and a former managing director of Flutterwave, said the foreign exchange challenges in the country had pushed Nigerian tech companies to commit their funds to foreign banks.

“Silicon Valley Bank was one of the few banks that understood how to bank technology companies. Most of our local banks don’t understand how to bank us and that was why there were so many tech companies that went to SVB. Most of the affected startups could have kept their money at home. The only challenge is that there are lots of regulations around restriction of foreign exchange.

“For instance, VC companies, like the Y combinator accelerator, which help African Tech startups raise funds, were impacted, as 30 per cent of their portfolio companies were impacted and Nigerian tech startups were part of the portfolio companies of Y combinator accelerator.

“The bank was affected as a result of the high interest rate and the bank wasn’t playing with depositors’ money; the bank invested the money in safe instruments. Unfortunately, because of the way they communicated their solution to the impediment, investors panicked and therefore they all rushed to the bank to withdraw their money.

“In Nigeria, we need to have a conversation on how we can develop our own tech bank. The bank needs to work slightly differently from the way normal banks operate. Some of the frameworks being explored in the Nigerian international finance centre would enable the creation of such a bank. So, what the Nigerian government needs to do is to accelerate that process, so that we can protect our technology startups hub,” Aboyeji explained.

On his part, the co-founder and senior product and project manager, VPD Money, a fintech digital bank, Mohammed Adeleke, said SVB was one of the few banks that lent funds to tech startups.

“It is perceived as one of the safest bank all over the world. Although, their regulator said they are going to pay up to $250,000 starting from Monday, those who have more than that figure with the bank will have to wait till either someone acquires the bank or till when all its assets are liquidised to get their money.

“This will impact them, because operational funds become stuck, in that they will not have the funds to pay salaries, making them lay off staff. I know one such tech company. Meanwhile, in Africa, Chipper Cash is one of the biggest tech startups in Africa that is affected, in that it has some of its funds with Silicon Valley Bank. Recall that Chipper Cash laid off 12.5 per cent of its employees in December, 2022. We expect to see more layoffs with this new development,” he said.

He added that with this new development, it will create panic among investors.

“There is panic with investors right now. For instance, a startup that wants to raise funds, investors will be scared to invest with that start up. Investors don’t know where to put in their money right now because they don’t know which one is safe. As an investor, you need to do your due diligence of the startup you want to invest your money with, and which bank the startup is banking with,” he said.

The director-general of National Information Technology Development Agency (NITDA), Inuwa Kashifu Abdullahi, revealed that Nigerian IT startups attracted $704 million in 2019, and $440 million in 2020 due to global COVID impact, and $1.7 billion in 2021 and $1.2 billion in 2022 from investors.

“Out of four million developers needed globally today, Nigeria can conveniently provide two million developers to the world, thus attracting about $40 billion from the value chain,” he added.

The NITDA boss further said the Nigerian IT ecosystem boasts of a large and growing economy, access to market, entrepreneurial culture, supporting government policies and access to talent, which have attracted about 30 per cent of the foreign investments coming to Africa.

Meanwhile, the head of financial institutions ratings at Agusto&Co, Ayokunle Olubunmi, whilst relating the SVB circumstance to the Nigerian banking industry, stressed the need for banks to diversify their assets and exposure.

“One of the first major things is about diversification. As a bank you need to be careful about your target market. The bulk of SVB business was to the tech guys and the tech world lives like a bubble as some of those businesses don’t really have basic fundamentals that are driving them. For banks in Nigeria, they need to be careful about their assets’ allocation. They should also try and see how to diversify and don’t get too concentrated on a particular sector,” he advised.

On his part, the vice president, Highcap Securities Ltd., David Adnori said: “The banking system in America is not the same as in Nigeria because if a bank is not doing well, and if it will not carry systemic consequences on the financial system in US, they will allow it to fail and then do the necessary thing.”

Adnori added that “here in Nigeria, the Central Bank has the policy to prevent any bank from collapsing, otherwise, they will have allowed Skye Bank/Polaris Bank to fail.”

He explained that, after the global meltdown that affected the former Intercontinental Bank, Oceanic Bank and others, the CBN came up with a rescue plan that protected depositors.

According to him, the Nigeria economy is even more fragile than the US economy, but that it is unlikely for banks to fail in Nigeria, as the CBN had stepped up its surveillance to ensure that banks meet the minimum statutory requirement.

“In the US, banks love to game the system more than we do here: you see a lot of sharp practices coming more from the US. In all industries globally, the regulators are always playing catch-up. It is easier for the operators to try and manipulate, so it is not a matter of regulation alone. I am not saying regulation is lax, but at the same time it also has to do with the operators who need to see that if things go south, they will be liable and the business will be impacted.

“However, something that we also need to have at the back of our mind is that you can’t divorce what is happening in the general economy from what is happening in the banking industry. The tech space has been having issues over a couple of months with the downsizing, and then you see a bank that is hugely exposed to that sector coming down.

“If you look at what happened with the oil and gas exposure in Nigeria, it is the banks that forced the regulators such that the upstream, midstream and downstream sectors are seen as separate sectors and each person can give up to 20 percent of its loan book, which was what led to huge exposures. So it is easier for operators to manipulate regulators. There is no regulation that is strong or stringent enough that if the operators want to game it, they won’t be able to,” Olubunmi had earlier said.

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The domestic debt owed by state governments and the Federal Capital Territory administration rose to N5.33tn as of the end of December 2022.

The sub-national domestic debt stock was N4.46tn by the end of 2021, which means it rose by N870bn within one year.

The latest figures released by the Debt Management Office indicated that Lagos State recorded the highest domestic debt as of the end of Q4 2022 with N807.21bn; this was followed by Delta State with N304.25bn and Ogun State with N270.45bn.

On the other hand, the lowest debt was recorded by Jigawa State with N43.95bn, followed by Kebbi State and Katsina State with N61.31bn and N62.37bn, respectively.

In the states’ debt profile breakdown, Abia, Adamawa, Akwa Ibom and Anambra owed N103.7bn, N124bn, N219.2bn and N77.4bn, respectively, while Bauchi, Bayelsa, Benue, Borno borrowed N143.6bn, N146.3bn, N141.3bn, N96.1bn respectively.

Other debtor states are Cross-River; N197.2bn, Ebonyi; N76.4bn, Edo; N110.5bn, Ekiti; N117.1, Enugu; N91.8bn, Gombe; N139.3bn, Imo; N204.2bn, Kaduna; N83.3bn, Kano; N122.3bn, Kogi; N93.6bn, Kwara; N109.3bn, Nasarawa; N71.4bn, Niger; 95.5bn, Ondo; N77.1bn, Osun; N148.3bn

Oyo, Plateau, Sokoto, Taraba, Yobe, Zamfara and FCT had N161.1bn, N149bn, N90.5bn, N87.9bn, N90.7bn, N112.1bn and N81bn respectively.

However, according to the DMO, the domestic debt stock for Rivers State was as of September 30, 2021, and figures for Katsina and Taraba states were as of September 30, 2022.

Reacting in an earlier interview, the Director, Centre for the Promotion of Private Enterprise, Muda Yusuf, said the rising debt profile of the government raised serious sustainability concerns.

He said, “The government tends to argue that the condition was not a debt problem, but a revenue challenge; the truth is that debt becomes a problem if the revenue base is not strong enough to service the debt sustainably.

“It invariably becomes a debt problem and possibly a debt crisis. The government’s actual revenue can hardly cover the recurrent budget, which implies that the entire capital budget and part of the recurrent expenditure are being funded from borrowing. This is surely not sustainable.”

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Bank workers and customers have lamented the quality of the old naira notes reintroduced into circulation by the Central Bank of Nigeria amidst the gradual disappearance of the new notes.

Saturday PUNCH gathered that bank tellers, who pay cash to customers, and workers in bulk rooms, who collect large cash deposits from depositors, were apprehensive that the dirty and mutilated notes could spread diseases.

A teller at a new generation bank in the Ibafo area of Ogun State, who spoke on condition of anonymity, told one of our correspondents that handling dirty notes was a source of concern to her and her colleagues, especially those in the bulk room.

She stated, “The fear of contracting diseases is real. Following the re-circulation of the old notes, the N1,000, N500 and N200 that we are being supplied to pay to customers are mostly dirty and mouldy. Some of the bundles smell bad and we have returned to wearing nose masks to safeguard our health.

“Last week, two of our colleagues in the bulk room started coughing and the situation degenerated to the extent that the branch manager asked them to stay away from work so that they could be treated. The affected workers complained of being exposed to mouldy and smelling notes, which they had to sort out.

“What we now do is covering our mouths and noses with face masks. We also keep hand sanitizers in strategic locations. The condition of the old notes makes many people sick and even customers are complaining, but they can’t reject the dirty notes because of the naira scarcity of the past three months.”

A trader in the Abule-Egba area of Lagos, Alhaji Sarafadeen Akanbi, who withdrew N500,000 from over the counter on Thursday, complained bitterly when the cash was handed over to him.

He said, “I urgently need the cash and that’s why I came here. I exploited my relationship with the bank employees, starting from the branch manager, as a highly valuable customer to withdraw N500,000. Though the bank limited other customers to N20,000, I was given the privilege of withdrawing that much.

“However, I was shocked when I was paid in dirty, smelling and mutilated notes. I complained to the manager and he said I could fill the deposit slip and my account would be credited with the amount if I felt dissatisfied as that was what was available. When I decided to sort out the money, I didn’t get up to N150,000 worth of manageable notes and I had to return the rest as the people I want to pay will not accept them from me.”

Many bank customers were still unable to make withdrawals in many branches in parts of Lagos and Ogun states on Friday as some of the lenders claimed that the cash supplied them had been exhausted.

At the Ibafo branches of UBA, Access Bank and First Bank, long queues of customers were seen at Automated Teller Machine galleries, while those who wanted to get into the banking halls besieged the gates.

Those who succeeded in making withdrawals lamented that the old notes were dirty and could spread diseases.

A security guard at the UBA branch informed the restless crowd that only those who wanted to make deposits and sort out failed transactions would be allowed in as the cash for over-the-counter withdrawals had been exhausted.

When one of our correspondents managed to gain access into the banking hall, a senior official of the bank said only N2m was made available for over-the-counter payment and that the amount was exhausted before noon.

The official said, “I am tired of the situation as we face serious pressure from customers, who are desperate to make withdrawals. When we opened in the morning, we were paying each customer N10,000 over the counter and through the ATMs, but when we realised that the money would soon get exhausted, we limited what each customer could get to N5,000.

“However, many customers are not having that as they claim that the CBN has allowed them to withdraw up to N500,000 weekly. While this is true, we can only pay out what we get.”

Asked if new notes were being mixed with the old notes, the banker said, “Where are the new notes? I haven’t seen the new notes in almost a month. They are not being supplied and the few ones paid out before the Supreme Court ordered the CBN to re-circulate the old notes are not coming back into the banking system.”

The branch manager of a Tier-1 bank on Victoria Island, Lagos, told Saturday PUNCH, “Customers can withdraw any amount up to the N500,000 limit set by the CBN for individuals and N5m for corporate bodies from our branch and many other branches on the island. A lot of customers from the Mainland have been coming here to make withdrawals.

“We have not received new notes for over two weeks. I don’t think the new notes are being printed currently. The availability of the old notes is dependent on how much each bank was able to return to the CBN before the deadline, as each bank is being given a percentage of the deposits.

“The payment of mutilated notes to some customers is meant to discourage those of them who insist on making withdrawals of huge amounts as that is against the spirit of the cashless transaction. Such notes can only be paid over the counter as they can’t be loaded in ATMs because they jam the machines and cause all sort of problems.”

Several calls to the CBN spokesman, Isa Abdulmumin, on Friday were unanswered as his phone rang out. Messages sent to him on WhatsApp also received no response.

However, Saturday PUNCH gathered that the apex bank had exhausted the new notes printed and had not been able to take delivery of more new notes and was only peppering over the cracks with the re-circulation of the old notes.

Saturday PUNCH had reported in February that the CBN might contract the printing of the redesigned N1,000, N500 and N200 notes to foreign contractors as acute scarcity resulted in violent protests occasioned by vandalism of bank facilities.

Sources had said the Nigerian Security Printing and Minting Plc, which is responsible for the printing of the naira, appeared to lack the capacity to meet the demand for the new notes.

To douse the tension created by the scarcity of the notes, the National Council of State had advised the apex bank to print more naira notes or re-circulate the old notes, which it mopped up from circulation, in order to ease the pressure on hapless Nigerians, who had been suffering from the scarcity of the new notes.

‘Embrace digital channels’

Meanwhile, the CBN has urged Nigerians to embrace alternative payment channels such as eNaira, USSD codes and other Internet banking facilities in line with its cashless policy.

The apex bank said the idea became necessary as the country was gradually marching towards the alternative payments policy regime, which is the trend all over the world.

Abdulmumin made the call during the CBN’s Special Day at the ongoing 34th Enugu International Trade Fair in Enugu on Friday, according to a report by the News Agency of Nigeria.

He added that the country could not afford to be left behind in the global financial ecosystem but rather embrace digital payment channels.

Abdulmumin, who was represented by the Assistant Director, Communication Department, CBN, Mr Imoh Esu, said the apex bank had continued to seek creative ways to ensure that Nigeria took full advantage of opportunities and benefits of digital payment channels.

This, he said, led to the launch of the eNaira in October 2021 aimed at broadening the payment possibilities of Nigerians and fostering digital financial inclusion, with potential for fast-tracking inter-governmental and social transfers.

He stated, “Similarly, the CBN in collaboration with the Nigerian Inter-Bank Settlement System, recently launched the National Domestic Card Scheme – the first in Africa.

“This is expected to not only lower operating costs for banks, but reduce the huge foreign exchange costs associated with operating foreign card schemes.”

 On the recent redesign of some denominations of the naira, Abdulmumin reiterated that the policy, which was approved by the President, Major General Muhammadu Buhari (retd.), was in the overall interest of the country and the economy, in addition to aligning with the international best practices.

According to him, overall, the policy has started strengthening macroeconomic fundamentals, moderating inflation and up-scaling the financial inclusion rate.

“It has also led to relative stability in the exchange rate and supported the efforts of the security agencies in combating banditry and ransom-taking in the country,” he added.

Earlier in his welcome address, the President, Enugu Chamber of Commerce, Industry, Mines and Agriculture, Mr Jasper Nduagwuike, lauded the various intervention schemes of the CBN in supporting and encouraging the growth of businesses in various sectors of the economy.

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Nigeria’s major carrier, Air Peace attained another milestone yesterday when it launched nonstop flight services to Mumbai, the capital city of Maharashtra State in Southwestern India.

Air Peace said it is starting with two weekly flight frequencies to Mumbai with plans to commence Delhi operations as soon as the Mumbai service garners significant momentum.

“This direct, nonstop Mumbai service is a respite to Nigerians and Indians who have to travel for so many hours to India with stopovers via other countries,” the airline said. The Chief Operating Officer, Air Peace, Oluwatoyin Olajide, said: “The Mumbai route is our fourth international destination and is strongly indicative of our unwavering commitment to continually expand our route network to meet the evolving travel needs of not only the Nigerian market but also the West African sub-region.

“On May 31, 2020, Air Peace became the first ever Nigerian airline to operate the first direct flight from Nigeria to Kochi, India, airlifting 312 Indian citizens. In the same year and early 2021, we operated more than six evacuation flights afterwards, showing our strength and familiarisation with the Indian airspace.

“Our Mumbai service is direct- meaning no stopovers. So, you’re saving time, money and avoiding stopover stress. Also, we’re offering a launch fare of 450,000 naira. That’s unbeatable, especially considering that we’re deploying our comfy Boeing 777 aircraft, offering passengers best-in-class hospitality.”

According to her, the airline is strengthening its presence on the Asian continent with the launch of Mumbai service, adding that it is not just a big stride for the airline; but also a huge feat for Nigeria in the implementation of its Bilateral Air Services Agreement, BASA, with India, and deepening socio-economic ties between both countries.

Olajide disclosed: “Passengers can connect from Kano, Port Harcourt, Abuja, Accra, Monrovia and Douala through Lagos to Mumbai, and if you are connecting from any of the aforementioned domestic routes, the fare for the local leg is waived. These are some of the benefits you enjoy on our Mumbai service.

“Discussions are ongoing with some Indian airlines for an interline partnership so that we can connect not just the West but the North, East and South of India to Nigeria and the West African region. Our promise is to consistently provide seamless connections for our esteemed customers across continents.

“Air Peace is only eight years old, but we have done a lot and have more planned in terms of route expansion and fleet modernisation.  As you may know, plans to launch Israel are on top gear as the Israeli government has approved April 20, 2023, as the kick-off date. Also being planned for launch are Jeddah, Malabo, Congo Kinshasa, Lome and we recently introduced Abuja-Banjul and Abuja-Dakar connections.”

The airline said it is investing in modern aircraft, adding that it has 37 aircraft currently and still expecting eight brand new Embraer 195- E2s and additional 15 brand new Boeing 737 Max 8 and 10 orders to boost its operations.

The COO expressed appreciation to the Nigeria Civil Aviation Authority (NCAA), Federal Airports Authority of Nigeria, the Ministry of Aviation, the Indian government, travel partners, and other stakeholders who contributed to making the Mumbai launch possible, assuring that the airline will work closely with all relevant aviation actors to ensure the new route is maximised.

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